G31 Business combinations

The acquisitions of business combinations executed in 2019 and 2020 are set out below. Annual revenue and number of employees reflect the latest known information at the date of the respective transaction.

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Business area	Cash Generating Unit	Company/Unit	Country	Acquisition date	Annual revenue	No. of employees
Sandvik Manufacturing and Machining Solutions	Business area level SMM	Wetmore Tool & Engineering	USA	January 9, 2019	160 MSEK in 2017	170
Sandvik Mining and Rock Technology	Sandvik Mining and Rock Technology	Artisan	USA	February 11, 2019	12 MUSD in 2017	60
Sandvik Manufacturing and Machining Solutions	Seco Tools	OSK	Japan	April 10, 2019	120 MSEK in 2017	90
Sandvik Mining and Rock Technology	Sandvik Mining and Rock Technology	Newtrax	USA	June 17, 2019	26 MCAD in 2018	120
Sandvik Materials Technology	Sandvik Materials Technology	Thermaltek	USA	December 31, 2019	13 MUSD in 2018	30
Sandvik Manufacturing and Machining Solutions	Walter	Melin Tool Company	USA	December 31, 2019	22 MUSD in 2018	100
Sandvik Materials Technology	Sandvik Materials Technology	Summerill Tube Corporation	USA	January 14, 2020	100 MSEK in 2018	45
Sandvik Manufacturing and Machining Solutions	Seco Tools	Quimmico Centro Technológico (QCT)	Mexico	June 1, 2020	90 MSEK in 2019	130
Sandvik Mining and Rock Technology	Sandvik Mining and Rock Technology	Allied Construction Partners LLC	USA	October 2, 2020	29 MUSD in 2019	38
Sandvik Manufacturing and Machining Solutions	Dormer Pramet	Miranda Tools	India	December 23, 2020	200 MSEK 2019	580
Sandvik Manufacturing and Machining Solutions	Sandvik Coromant	CGTech	USA etc.	December 31, 2020	470 MSEK in 2019	180

Total fair value of assets and liabilities of acquired businesses in 2020

The fair value of acquired assets and assessed liabilities has been preliminarily established for the acquisitions of Miranda Tools and CGTech. The final fair value of acquired assets and assessed liabilities for Summerill Tube Corporation, Quimmico Centro Technológico (QCT) and Allied Construction Partners LLC has been established during 2020. Only minor IFRS adjustments were made to the acquisition values.

All acquisitions above were made through the purchase of 100 percent of shares and voting rights or through the purchase of the net assets of the acquired operations, except for the acquisition of Allied Construction that was made through the purchase of 79 percent of shares and voting rights. Sandvik received control over the operations upon the date of closing the acquisition. No equity instruments have been issued in connection with the acquisitions. All acquisitions have been accounted for using the acquisition method.

The amounts presented in the following tables detail the recognized amounts aggregated by business area, as the relative amounts of the individual acquisitions are not considered significant, except for CGTech and Miranda Tools businesses which are disclosed separately. Sandvik is in the process of reviewing the final values for CGTech and Miranda Tools. No adjustments are expected to be material.

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Fair value recognized in 2020
	SMRT	SMM			SMT	Total
		Total	Whereof CGTech	Whereof Miranda Tools
Intangible assets	–	390	–	347	36	426
Property, plant and equipment	9	96	8	35	24	129
Other non-current assets	2	25	18	7	–	27
Inventories	52	39	–	35	39	130
Receivables	26	146	118	28	17	189
Other current assets	1	22	22	1	–	23
Cash and cash equivalents	5	70	70	–	–	75
Interest-bearing loans and borrowings	–2	–16	–16	–	–	– 18
Other liabilities and provisions	–11	–150	–135	–15	–26	– 187
Deferred tax assets/liabilities, net	2	–192	–192	–	–	– 190
Net identifiable assets and liabilities	84	430	– 107	438	90	604
Goodwill and surplus values, net	20	2,793	2,793	–	–	2,813
Purchase consideration	–104	–3,223	–2,686	–438	–90	–3,417
Cash and cash equivalents in the acquired business	5	70	70	–	–	75
Transaction expenses	0	–45	–29	–13	0	–46
Net cash outflow	–99	–3,198	–2,645	–451	–90	–3,388

In January, Sandvik Materials Technology acquired Summerill Tube Corporation, a manufacturer of high precision tubes. Since 1892 it has delivered seamless and welded tubing in stainless steels and nickel alloys to various high demanding industries including aerospace, transportation and petrochemical. Intangible assets of SEK 27 million and goodwill of SEK 9 million was recorded on the purchase. The deal has a limited impact on earnings per share from the start. The goodwill is deductible for tax purposes.

In June, Seco Tools a division within Sandvik Manufacturing and Machining Solutions acquired the cutting tools division of Quimmco centro tecnológico (QCT), a privately owned Mexican company offering integral machining solutions. The acquisition of QCT’s cutting tools division expands Seco Tools’ capabilities in custom-made tools, meaning further long-term support in our productivity offering to customers. The deal has a limited impact to earnings per share from the start. Goodwill of SEK 44 million was recorded on the purchase. The goodwill is not deductible for tax purposes.

In October, Sandvik Mining and Rock Technology acquired 79 percent of Allied Construction Products LLC (Allied), a US distributor of hydraulic hammers to the construction and mining industries and manufacturer of compactor plates and mounting brackets. Sandvik was already a 21 percent minority shareholder of the company and Sandvik’s products generated about 80 percent of Allied’s revenues. The deal is neutral to Sandvik’s earnings per share from the start. Goodwill of SEK 20 million was recorded on the purchase. The goodwill is deductible for tax purposes.

In December, the Sandvik Coromant division within business area Sandvik Manufacturing and Machining Solutions completed the acquisition of US-based CGTech, a global market leader in software for numerical control (NC/CNC) simulation, verification and optimization. The product offering includes Vericut®, a machining simulation and optimization software which is CAM, machine tool manufacturer and cutting tool neutral and works stand alone or in conjunction with all major CAM suppliers. The combined machining expertise of Sandvik Coromant and CGTech will enhance the Group´s capabilities in machining intelligence, strengthen the software offering and facilitate an improved presence in key areas of the customer value chain. Intangible assets of SEK 1,079 million and goodwill of SEK 1,714 million were recorded on the purchase. The goodwill is deductible for tax purposes.

In December, Sandvik’s division Dormer Pramet within business area Sandvik Manufacturing and Machining Solutions completed the acquisition of the entire business of the Indian company Miranda Tools, comprising the manufacture of High Speed Steel and solid carbide round tools. The acquisition enhances Dormer Pramet’s product offering and facilitates an improved presence in key markets such as India, China and Southeast Asia.

The deal has a limited impact on Sandvik’s earnings per share. Intangible assets of SEK 143 million and goodwill of SEK 204 million were recorded on the purchase. The goodwill is not deductible for tax purposes.

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Change of total fair value recognized in the Group in 2020 from businesses acquired during 2019
	SMRT			SMM			SMT			Total

	2019	2020	Change	2019	2020	Change	2019	2020	Change	2019	2020	Change
Intangible assets	23	23	–	–	–	–	–	139	139	23	162	139
Property, plant and equipment	4	4	–	45	113	68	–	3	3	49	120	71
Other non-current assets	21	21	–	–	–	–	–	–	–	21	21	–
Inventories	61	61	–	52	120	68	–	10	10	113	191	78
Receivables	175	175	–	86	97	11	–	8	8	261	280	19
Other current assets	29	29	–	3	5	2	–	–	–	32	34	2
Cash and cash equivalents	38	38	–	3	10	7	–	–	–	41	48	7
Interest-bearing loans and borrowings	–245	–245	–	–28	–28	–	–	–	–	–273	– 273	–
Other liabilities and provisions	–200	–200	–	–94	–184	–90	–	–4	–4	–294	– 388	– 94
Deferred tax assets/liabilities, net	4	4	–	2	1	–1	–	–	–	6	5	– 1
Net identifiable assets and liabilities	– 90	–90	–	69	134	65	–	156	156	–21	200	221
Goodwill and surplus values	930	930	–	730	606	–124	154		–154	1,814	1,536	–278
Purchase consideration	–840	–840	–	–799	–740	59	–154	–156	–2	–1,793	–1,736	57
Cash and cash equivalents in the acquired business	38	38	–	3	10	7	–	–	–	41	48	7
Transaction expenses	–74	–74	0	–46	–56	–10	–	–2	–2	–120	–132	–12
Net cash outflow	–876	–876	0	–842	–786	56	–154	–158	–4	–1,872	–1,820	52

The fair value of the acquisitions made during 2019 have changed due to the establishment of a final purchase price agreement during 2020.

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Contributions from companies acquired in 2019 and 2020 by business area
	SMRT		SMM		SMT		Total

	2019	2020	2019	2020	2019	2020	2019	2020
Contributions as of acquisition date
Revenues	83	50	211	25	–	79	294	154
Profit (loss) for the year	–124	–2	–26	–9	–	3	–150	–8

Contributions if the acquisition date would have been January 1
Revenue	293	227	447	523	126	79	866	829
Profit (loss) for the year	–147	–1	–9	4	27	3	–129	6

Other acquisitions

In December, Sandvik acquired a minority stake in the privately owned American software company Oqton, a leading provider of AI-powered manufacturing solutions that allows manufacturers to manage, optimize, and automate their manufacturing workflows. This has been recognized as a financial asset.

Accounting principles

Subsidiaries are entities over which the Parent Company has a controlling influence. Controlling influence exists if the Parent Company has the power over the investee, meaning the investor has existing rights that give it the ability to direct the relevant activities, is exposed to or has the rights to variable return from its involvement in the investee and can, through its influence, affect the return from the involvement in the investee. In assessing a controlling interest, defacto control, potential voting rights that are currently exercisable or convertible are taken into account.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that the controlling influence commences until the date that control ceases. For cases in which the subsidiary’s accounting policies do not coincide with the Group’s accounting policies, adjustments were made to comply with the Group’s accounting policies.

The consolidated financial statements are prepared in accordance with the purchase method. In business combinations, acquired assets and assumed liabilities are identified and classified, and measured at fair value on the date of acquisition (also known as a purchase price allocation).

Transaction costs in conjunction with acquisitions are directly in profit or loss for the year as other operating expenses.

Contingent considerations are recognized as financial liabilities and at fair value on the acquisition date. Contingent considerations are remeasured at each reporting period with any change recognized in profit or loss for the year.

In step acquisitions, when a controlling interest is achieved, any net assets acquired earlier in the acquired units are remeasured at fair value and the result of the remeasurement is recognized in profit or loss. If the controlling interest is lost upon divestment, net profit is recognized in profit or loss. Any residual holding in the divested business is then measured at fair value on the date of divestment and its effect is recognized in profit or loss for the year.

Critical estimates and judgments

The business areas use estimates and judgments regarding allocation of goodwill and other surplus values in a business combination.